Author: Sally

By Susan Sturm, Professor of Law and Social Responsibility, Columbia Law School

Responsive Regulation is one of the most important and influential contributions to the field of regulation; it has reshaped the way scholars approach regulatory design. Taking its value and significance as a starting point, this talk will draw on field research and multi-disciplinary scholarship to identify a set of premises that limit responsive regulation’s traction as a framework for regulatory analysis and design. Responsive regulation focuses inquiry on individual-level motivations and decisions, and on the strategies used by individual regulators to influence those motivations and decisions. Its implicit assumptions do not take adequate account of the multi-level systems dynamics that produce and potentially change problematic conditions and practices. I will argue that Responsive Regulation is too narrow, in its emphasis on using regulatory strategy to influence behavior of individual actors, and too broad, in its recommendation that individual regulatory actors become full-service interveners, each striving to move up, down and across the capacity building and regulatory pyramid. The talk will also offer the outlines of an approach that is rooted in multi-level systems analysis and focuses regulatory design on critical questions affecting the efficacy of public and private interventions. I will suggest that regulators should develop the capacity to apply a multi-level, systems theory of institutional change.

By David Duff, Professor of Law, University of British Columbia

Among the many spheres of legal regulation that have been influenced by John Braithwaite’s work on responsive regulation, one of the most important but least widely appreciated is taxation. Beginning with the Australian Tax Office’s shift from a deterrence approach to a “compliance model” of tax enforcement in the 1990s, governments and revenue authorities in several developed countries have introduced legislative and administrative reforms based on the central insights of a “responsive regulatory pyramid”.

Aiming at the base of the pyramid, reforms have sought to encourage voluntary compliance through enhanced procedural fairness and the development of cooperative relationships among revenue authorities, taxpayers and tax intermediaries based on improved understanding and responsiveness by revenue authorities and increased transparency and information disclosure by taxpayers and tax intermediaries. At the same time, governments and revenue authorities have sought to enhance their capacity to “escalate up” the regulatory pyramid where necessary through mandatory disclosure rules, the assessment and management of tax risks, the introduction of stiffer penalties and other sanctions for non-compliance, and the regulation of tax intermediaries through licensing regimes and promoter penalties. They have also pursued “meta risk management” by encouraging business enterprises to focus on managing their own tax risks, and cultivated regulatory networks through the establishment of international partnerships like the OECD Forum on Tax Administration, the Joint International Tax Shelter Information Centre (JITSIC) and the Leeds Castle Group.

As an efficient strategy to marshal limited regulatory resources for maximum effectiveness, responsive regulation is, as Braithwaite himself suggests, “just common sense.” At a deeper level, however, responsive regulation also reflects a set of values associated with respect, dialogue and non-domination that, as Braithwaite also emphasizes, “define not only a just legal order, but a caring civil society.” As a result, if responsive regulation is to fulfill these broader aims, the legal framework that the regulatory pyramid supports must itself be recognized as legitimate and fair.

Although this perceived legitimacy likely exists for many areas of legal regulation (at least in democratic societies), the regulation of tax law is much more difficult since the legitimacy of specific taxes and (to a lesser extent) taxation in general remain subjects of considerable debate in most democratic societies. More seriously, perhaps, to the extent that tax laws are complicated and unclear, it is problematic for revenue authorities to rely on regulatory escalation to enforce their interpretation of the law, absent independent affirmation by the courts. Each aspect of tax law poses challenges for responsive regulation in this area of law.

Regarding the legitimacy of specific taxes or taxation in general, one might conclude that these are determined by the political process and must, like all laws, be assumed as legitimate for the purpose of enforcement. At the same time, the theory and practice of responsive regulation suggests that governments and revenue authorities should be responsive to challenges about the legitimacy of taxes, and should work to build trust with citizens about the collection of public revenues through taxes, as well as their expenditure.

The problem of legal uncertainty is a deeper one for responsive regulation, as it calls into question the legitimacy of any regulatory escalation where the revenue authority’s interpretation of an unclear rule or standard has not been recognized by the courts. This is a particular concern with abusive tax avoidance, where transactions are designed to come within the words of the tax law despite contradicting their purpose. Although most developed countries (with the rare exception of the United Kingdom) have adopted broad anti-abuse doctrines or general anti-avoidance rules to forestall these opportunities, these doctrines and rules are notoriously difficult to apply, particularly in common law jurisdictions with a history of complex tax legislation comprised of detailed rules. At the same time, anti-abuse doctrines and rules are arguably essential to maintain the integrity of the tax system and public trust in its fairness, the erosion of which can undermine voluntary compliance with tax laws, particularly in self-assessment systems like those in developed common law jurisdictions.

Although its complexity suggest that tax law is apt to be less certain than other areas of law, theories of responsive regulation suggest two approaches to enhance legal certainty strategies to enhance legal certainty, making it possible for anti-abuse rules to be applied in a more coherent and consistent way. First, as Braithwaite himself as argued, the combination of detailed statutory rules with broader statements of principle can both lessen complexity and enhance legal certainty, providing statutory guideposts to inform the application of broader anti-abuse doctrines and general anti-avoidance rules. Second, legal certainty can be enhanced through increased communication among practitioners, regulators, judges and academics – building on some of the core values of respectful dialogue hat underlie the theory of responsive regulation.

By Mary Liston, Law, University of British Columbia

Modern republican theory constitutes the normative foundation of responsive regulation. John Braithwaite’s initial approach to responsive regulation appears firmly grounded in the kind of democratic republicanism espoused by theorists like Philip Pettit and Jeremy Waldron. His most recent (re)statement reveals important shifts in his reliance on republicanism as a foundational political morality for public law.

In order to analyze and explore the possibilities represented by this shift, the paper will first describe the main tenets of republican theory, especially those identified by Pettit, and illustrate how these tenets distinguish republican conceptions of the rule of law from liberal conceptions. The paper discusses why this matters for the rule of law in terms of the scope and robustness of both republican and liberal approaches to controlling for arbitrariness in public decision-making and regulatory environments. The difference between the two approaches comes to a head in the valuation of rights and the merits of strong judicial review. This aspect of republican theory is best represented in the work of Jeremy Waldron and his well-known opposition to strong judicial review. Braithwaite’s republicanism appears to offer a reconciliation in the tensions among judicial review, democracy, and institutional design. The paper argues that such a reconciliation crucially matters because it corresponds with several key features of Canadian public law.

Proponents often claim that republicanism represents a single unified theory capable of controlling all forms of arbitrariness. The viability of republicanism as the principal political morality for our times falters when the demands of pluralism are taken into account. Braithwaite’s conceptual shift enables republican theory to go some distance to meet the significant challenges that pluralism and incommensurability—both permanent conditions in modern political communities—pose.

Finally, if confronting multiple forms of arbitrariness appears to be a rule of law commitment shared among several theoretical approaches, this paper argues that republicanism should ally itself with these compatible approaches in order to expand the depth and breadth of law to resist arbitrary modes of decision-making in a multiplicity of contexts. In contrast to other republican theories, Braithwaite’s work seems to anticipate this necessity by offering a dynamic, sophisticated and principled regulatory approach that aims to respond to complexity through innovative institutional design and the ideals of restorative justice.

By Judith Freedman, KPMG Professor of Taxation Law, Oxford University

The work of John Braithwaite and his colleagues on responsive regulation has had a major influence on tax authorities around the world. Many tax officials are familiar with the regulatory pyramid and compliance model developed by his team. Via the Australian Tax Office and the OECD Study into the Role of Tax Intermediaries, these ideas have spread widely and have been closely linked to the development of risk-based regulation by revenue authorities.  These authorities, under budgetary pressure, see that efficient resource allocation can be facilitated by use of the responsive regulatory pyramid; risk-rating taxpayers can ensure that enforcement is targeted towards those at the top of the pyramid.  The revenue authorities offer enhanced co-operation which seeks to influence the behaviour of corporate taxpayers by building a relationship  based on co-operation and trust, with both parties going beyond their statutory obligations. These outcomes have been welcomed by the corporations and professional tax community in a number of countries and show a practical application for responsive regulation.

This application of responsive regulation theory is not without difficulty in the corporate  tax sphere, however. As Braithwaite has noted himself, compliance with the law is not generally the problem in this area; rather, the issue is that that the compliance may not reflect what the revenue authorities perceive to be the policy purposes of the tax laws. Influencing corporate taxpayers away from creative compliance by the use of risk-rating and the withdrawal of enhanced co-operation involves an exercise of discretion which is not fully accountable and open to scrutiny. Whilst recognizing that it is the essence of responsive regulation that it goes beyond rule compliance, the paper argues that seeking to penalize taxpayers who do not accept the interpretation of the revenue authority of complex tax law by forcing them up the pyramid may go too far. It may also undermine the very trust it is sought to create.

Tax law is a difficult area in which to apply responsive regulation, precisely because of the complexity and artificiality of taxation. Whilst paying tax is essential to the well-being of society, the level of the tax to be paid is a matter for proper political debate and the policy objectives of a particular piece of legislation can be hard to discern. Finding a framework which balances the positive aspects of a responsive regulatory regime and risk-rating with  the need to provide controls on the discretion of revenue authorities is now the challenge to be met.

By Dennis Ventry, School of Law, University of California, Davis

Americans hate taxes. The burden of supporting wasteful government programs is too much to bear, far exceeding the weight borne by citizens of other industrialized countries. At least that is what politicos and pundits tell us. It is also what the “patriots” of the Tea Party movement declare as fact. And it certainly animates the rhetoric and propaganda of anti-tax fomenters since the founding of the republic. After all, the birth pangs of the nation originated in the Boston harbor with a protest over heavy taxation on imported British tea.

It turns out that none of the foregoing is true. Americans do not hate taxes. They never have. Instead, they hate what they get in return (or at least what they think they get in return). That includes not just the over-priced, low-quality benefits of civilization, but also the unduly burdensome process of paying for those benefits. The awful, complex, plain-English-be-damned, anxiety-ridden process of remitting payment to the government in exchange for public goods that taxpayers, alternatively, vilify or view as birthrights. Nor is it true that Americans hate government. Rather, they hate government that commands rather than enables, that occupies the breach rather than steps into it. Indeed, with particular respect to their federal government, Americans prefer inconspicuous to conspicuous, invisible to visible, or as one historian of the American political tradition recently put it, Americans prefer government that is “hidden in plain sight.”

Guided by these premises—that is, Americans do not hate taxes but rather the process of taxpaying and coercive tax regulation, both of which generate mistrust and misunderstanding of government—this Article offers a pathway for reforming tax preparation and filing. It explores the long-forgotten concept of “tax consciousness,” both from the perspective of its early proponents and how improvements in tax filing can achieve robust, modern tax consciousness. Moreover, its plan for reform promotes consciousness among taxpayers by leveraging technology and the government’s core competency for inventorying taxpayer data in order to make tax preparation and filing less burdensome, more user-friendly, electronically secure, customer-oriented, and even gratifying. Finally, the Article discusses how a reformed taxpayer-government interface can facilitate the submission and processing of tax returns and also educate taxpayers as to what taxes purchase as well as who among them is getting civilization at a discount.

By Cristie Ford, Faculty of Law, University of British Columbia

The financial crisis makes clear that questions about the appropriate regulatory mix of strategies do not take place in isolation from questions of power and influence, which directly affect feasibility and effectiveness in practice.  It also makes clear that actually operationalizing any regulatory design is bound to meet entirely unexpected challenges.  The purpose of this essay is to consider what the experience of the financial crisis can teach scholars of process-based regulation, and responsive regulation in particular, by widening the lens outward to consider the “macro” forces of power and the “micro” forces within implementation that operate on any regulatory structure.  It argues that process-based and responsive regulation would benefit from building in, at a structural level, greater attention to both the background influence of power, and the mechanisms of incrementalist change that occurs within the interstices of its flexible regulatory process.  The essay closes with a few observations about potential tools available to responsive regulators for addressing the challenges identified.

By Dimity Kingsford-Smith, Professor of Law, University of New South Wales

This paper argues that responsive regulation has been successful in regulatory contexts where physical inspection of mines, workplaces, factories, nursing homes and so on is undertaken. Responsive regulation has been successful where human agency in creating regulatory relationships is natural, central and regular. In some ways, responsive regulation might justifiably have been called ‘relational regulation’. The paper argues that responsive regulation has been less successful where institutions, locations of value transactions and actors are more distant from regulatory supervision. By this I mean that it makes a difference that the business to be regulated is less ‘industrial’ in the sense of having locations where its activities are carried on and can be inspected. Where inspection or supervision is difficult or impossible, either because of the protean and intangible character of the business or because the regulator has limited powers to do so, then again, responsive regulation has had more difficulty in gaining traction. Bringing evidence from Australian financial regulation and with some reference to the circumstances in the US at the time of the GFC, I will argue that the financial services sector has been a particularly difficult nut for responsive regulation to crack.

By Dimity Kingsford-Smith, Faculty of Law, University of New South Wales

In Responsive Regulation (1995) Ian Ayres and John Braithwaite argued for the importance of PIGs, public interest groups, in regulatory tripartism. Since then the idea of responsive regulation has been expanded by recognizing the value of non-state participants in regulation, for example industry associations. This paper will consider, in the financial advisory sector, a variation to tripartism – the separate and partial role of role of regulators, the regulated and PIGs in responsive regulation. From regulatory experience, open-ended interviews and legal analysis, it will argue that industry associations have significant capacity for identifying and promoting the public interest, when there is no obvious PIG and despite heated resistance from important sectors of the association. The constitution of the association by a ‘regulatory  contract’, resources and the willingness of individuals to be ‘regulatory entrepreneurs’ provide limits to public interest advocacy by industry associations. However, in all aspects of regulation – rule making, information collection and behavior modification – the contribution is valuable and means of promoting such participation (‘hybrid tripartism’?) worthy of theoretical reflection and practical regulatory action.

By Oren Perez, Faculty of Law, Bar Ilan University, Israel

Responsive regulation, reflexive law and self-regulation emerged as a response to three central challenges facing the modern regulatory project: (1) designing regulatory policy in a social environment of multiple causes ; (2) the radical uncertainty involved in planned intervention in a differential and complex society, which is not susceptible to linear calculations; and (3) recognition that any regulatory intervention must also respect the inner dynamic of the regulated systems, given the potential adverse effects of external intrusion on systems’ internal structure. These three regulatory forms are based on a common recognition of the limits of state regulation, and on a mutual exploration of circumlocutory forms of regulatory intervention. The basic pre-commitments underlying these alternative regulatory approaches generate, however, a paradox, which may undermine their pragmatic vision. Despite their apparent teleological modesty these models are subject to the same epistemological barriers that underlie more conventional forms of regulation (command & control, economic regulation). Indeed, close inspection reveals that none of these models provide a clear solution to the unique epistemological challenges, which are facing its actual application. The paper will explicate this argument and will examine whether, if at all, this problem has rational solution.

By Arthur Stinchcombe, Sociology, Northwestern University

In his famous Number 10 paper in the [American] Federalist Papers, Madison explicitly argues that local governments of provinces (“States”in the US) are supposed to be responsive to, and to balance, local interests and local belief systems, while the central (“Federal” in the US) government is to regulate them in military, foreign policy, and commercial matters, and some matters having to do with “sovereignty.”

This presentation draws from Madison (and some from Hamilton) their suggested features of such regulation and responsiveness, and suggests a translation of these to a form fitting the problems the Braithwaites and their colleagues are trying to improve, and many more as we see in the materials of this conference. It suggests further exploration of: (1) Representation in the regulator; of the various interests and civil society organizations  from the sites regulated; (2) Public debate within the sites as well as in the regulator  resulting in a balance of interests and ideologies; (3) Circulation of authoritative information from varieties of sources, constituting publicly debatable right to petition their government for the redress of grievances; (4)Effective formalization in a system so that everybody knows what everybody is finally responsible for doing, without destroying the integrity of the regulation discourse, which in turn means the ability to formalize changes in the regulation. He would also urge, though will not defend it here, that “Federalism” itself should usually be studied as a system of regulation of activities, rather than as an arrangement of Court decisions and opinions on constitutional jurisdiction.